Sands link to Chinese traids

aurvandil · Mar 30, 2010

The following is a report from Reuters that shows that Sands is linked with the Chinese triads. Under the Casino Control Act 2006, the Casino Regulatory Authority should investigate this linkage between the Sands Macau operations and the Chinese triads. If the linkage is true, the Act requires that the Sands casino license be revoked.

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Special report: High-rollers, triads and a Las Vegas giant

By Matt Isaacs and Reuters staff
SAN FRANCISCO/MACAU (Reuters) - Late last autumn, a Hong Kong jury convicted four men of a conspiracy to commit bodily harm and a fifth of soliciting a murder.

At first, the men had been ordered to break the arms and legs of a dealer at Sands Macau suspected of helping a patron cheat millions of dollars from the business. Later, a call went out to murder the dealer, court records show. But then one of the gangsters balked and reported the plans to authorities.

The plot's mastermind, according to testimony in previously undisclosed court transcripts obtained by Reuters, was Cheung Chi-tai. At trial a witness identified Cheung as a leader of the Wo Hop To -- one of the organized crime groups in the region known as triads. Another witness, a senior inspector with the Hong Kong police called to testify because he is an expert on the triads, identified Cheung by name as someone who would commit crimes for money. Cheung's organized crime affiliation was corroborated in interviews for this article with law enforcement and security officials intimately familiar with the gaming industry in Macau.

The murder-for-hire case sheds light on the links between China's secretive triad societies and Macau's booming gambling industry. It also raises potentially troubling questions about one of the world's largest gaming companies, Las Vegas Sands, which plans to open a $5.5 billion Singapore casino resort in late April.

Cheung was not just named as a triad member but also, according to a regular casino patron testifying in the trial, "the person in charge" of one of the VIP rooms at the Sands Macau, the first of three casinos run here by Las Vegas Sands. In addition, Cheung has been a major investor in the Neptune Group, a publicly traded company involved in casino junkets -- the middlemen who bring wealthy clients to Macau's gambling halls. Documents show that his investment allowed him a share in the profits from a VIP gambling room at the casino.

An examination of Hong Kong court records, U.S. depositions from the former president of Sands, and interviews with law enforcement and security officials in both the U.S. and Macau, reveals a connection between Las Vegas Sands and Cheung -- ties that could potentially put Sands in violation of Nevada gaming laws.

The Reuters investigation is a collaboration with the Investigative Reporting Program at University of California, Berkeley.

U.S. casinos operating in Macau are all headquartered in Nevada and must comply with that state's laws which prohibit "unsuitable" associations that "discredit" its gaming industry. Those laws are meant to keep organized crime figures out of the casinos.

Leading up to its public offering in Hong Kong last November, Sands China, a subsidiary of Las Vegas Sands, acknowledged the risks of working with gaming promoters -- another term for junkets: "If we are unable to ensure high standards of probity and integrity of our Gaming Promoters with whom we are associated, our reputation may suffer or we may be subject to sanctions, including the loss of (Sands' Macau gaming license,)" the company wrote in a public filing.
Randall Sayre, a member of the Nevada Gaming Control Board that monitors casino compliance, declined to comment specifically on Sands Macau, writing in an email that the state "takes no public position on suitability ... without a full investigative work-up."

A gaming official, who insisted upon anonymity, said: "This relationship (with Cheung) would be of concern to Nevada authorities. You're talking about direct ties to bad guys." Another said the agency is monitoring the situation.

Las Vegas Sands issued a statement saying, "to our knowledge, Mr. Cheung Chi Tai is not listed as a director or shareholder" with any of the gaming promoters the company uses in Macau, but declined to comment further.

Sands was the first U.S. operator to cash in on the Chinese passion for gambling when it entered Macau in 2004 after the government opened the casino market to outsiders.

Since reverting to China in 1999, Macau, an hour away from Hong Kong by ferry, has flourished as one of the world's wealthiest cities. The territory's economy has soared in recent years -- much of the wealth generated by the enclave's casinos.

Indeed, the former Portuguese colony has become a playground for China's nouveau riche. And the gleaming neon red lights of the Sands Macau casino are the first sights a visitor takes in as the ferry approaches Macau.

THE JUNKETS

The link between Macau's gambling industry and organized crime may be an open secret, but it has come under increasing scrutiny lately. Within the last two weeks, MGM Mirage said it would give up its holdings in New Jersey in response to pressure from the New Jersey Division of Gaming Enforcement. The state agency had said that Pansy Ho, MGM Mirage's partner in Macau and the daughter of casino tycoon Stanley Ho, was an "unsuitable" associate, an assertion stemming from the agency's belief that her father has links to organized crime.

The involvement of the triads in Macau's casinos is centered on the murky and highly profitable junket business. The VIP sector brought in $9.9 billion last year, two-thirds of the enclave's total gambling revenues.
Macau has about 187 licensed junket operators, said Manuel Joaquim das Neves, director of Macau's Gaming Inspection and Coordination Bureau.

The junkets are crucial because they ensure the flow of capital by extending credit to gamblers, often millions of dollars on a visit. They assume responsibility for collecting on their loans -- at times indelicately, authorities say.

They also often assume management of the private VIP rooms. And while many law-abiding junkets are active in Macau, experts say the industry is highly susceptible to criminal influence given the extra-legal functions and opaque environments in which they work.

In an interview, Dan Grove, a former agent for the FBI who oversaw security for Sands Macau in the first few years after its opening -- and before the casino became involved in junkets -- characterized pressure from triads to work with the casino as "immense."

When known crime figures applied directly for contracts, blocking them was easy, Grove says. But if legitimate professionals submit applications and then sub-contract the work to the triads, detecting such ties was more difficult if not impossible.

JUMBO BOOM

Cheung Chi-tai's ties to Sands Macau came through such a multi-tiered arrangement. His solely owned company, Jumbo Boom Holdings, provided capital for another firm, now called Neptune Group, to acquire a stake in Hou Wan, a junket operator. Hou Wan was entitled to profits from Sands Macau's Chengdu VIP room.

Cheung owned more than 8 percent of Neptune Group in 2008, according to public filings with the Hong Kong stock exchange. That made him a substantial shareholder when the call for the dealer's murder went out.

When asked about Cheung, Nicholas Niglio, Neptune's chief operating officer, said: "I'm not familiar with him at all."
After a reporter showed him Neptune's 2008 annual report listing the firm's substantial shareholders, including Cheung, Niglio declined to respond specifically. Cheung does not appear in Neptune's 2009 annual report.

Niglio said Neptune wasn't a junket itself but invests in VIP junkets that operate at the Sands Macau, the Venetian Macau and Galaxy Entertainment's StarWorld casinos. He said Neptune now had a 20 percent stake in Hou Wan, a junket operator that runs around 20 VIP tables at the Sands Macau.

In Neptune's public filings three years ago, Cheung was described as a "merchant in Hong Kong" whose company "generally does not engage in underwriting business and has no underwriting experience as at the date of this announcement."

While Niglio described Neptune merely as an "investor" in junkets, trial testimony placed Cheung inside the casino's private room.

According to testimony by Siu Yun-ping, aka the "God of Gambling", who won about HK$100 million ($12.9 million) between August 2007 and January 2008 at various casinos, Cheung was "the person in charge" of the Chengdu Hall, one of the VIP rooms that Siu frequented.

Las Vegas Sands, however, has said it maintains management of all its VIP rooms, though it acknowledges working with gaming promoters to attract customers.

aurvandil · Mar 30, 2010

FRIGHTENED AWAY FROM THE SANDS

A triad member turned informant named Lau Ming-yee testified that he, and the five men who would be convicted of engaging in triad activities, referred to Cheung as "the boss."

Cheung, however, didn't appear in court and was not charged. Hong Kong police declined to answer detailed inquiries on why this was so. In an emailed response, authorities acknowledged only that a 49-year-old man surnamed Cheung was arrested in connection with the case but "released after legal advice was sought due to insufficient evidence."
Attempts to determine Cheung's current whereabouts with the Hong Kong police and U.S. gambling industry sources in Macau were unsuccessful.

The judge in last year's murder-for-hire case, Madame Verina Bokhary, said in passing sentence that, "I bear in mind of course that, behind the scenes, there is a person or are persons even more blameworthy than any of them."

In the summaries of the trial called "particulars of offense" the judge identified Cheung by his Cantonese nickname, "Tsang Pau," or "explosive money maker."

Siu, the "God of Gambling" suspected of colluding with the dealer at the Sands Macau, testified that he had been attacked, his house had been set aflame and that his son had received threatening phone calls. "As a result of Tsang Pau (Cheung), he (the witness) was frightened away from the Sands Casino," according to the judge's summary.

Macau's regulator Neves acknowledges that the junket business in Macau has links to organized crime, though he says it is less prevalent and more under control than in the past.

"This kind of business certainly involves people related to organized crime," he said. "That's why we established the license for just a year. Every year, they (the junket operators) must renew the license."

Asked specifically about whether Macau will strip the license from a casino operator if the regulators discover that it is hiring a junket operator with links to organized crime, Neves said: "It's separate. In principle, it doesn't affect the concessionaires."

Neves said he was informed by police of Cheung's alleged role in the murder-for-hire case. But he described the accusations against Cheung as "rumors" and said without formal charges being brought against him, he would be free to continue to operate in Macau.

"If he (was) condemned by the Hong Kong court ... if he was arrested and condemned ... we wouldn't allow him to run the junket," he said. "In this kind of case we must deal very carefully ... Sometimes if we use this (rumor) to deny the license, he can put us in court."
Unlike Las Vegas, where casinos tend to have direct relationships with their VIP customers, Macau's casinos rely on junket operators to bring them the majority of their high rollers, who might easily lose US$1 million in an evening.

THE $64,000 BET

On a late Friday night in February, gamblers were exchanging wads of golden one thousand Hong Kong dollar banknotes ($130) for expensive chips in the exclusive and restricted VIP gaming rooms of the Sands Macau.

The labyrinth of rooms -- decorated with classical Greek columns, Italian marble and chandeliers -- were largely filled with mainland Chinese clients at high-stakes Baccarat tables.

The atmosphere was smoky, hushed and privileged, as casino employees kept watch. The rooms seemed a world removed from the mass market gaming floors below.

At the "Luoyang" room, named after a gritty Chinese city, most gamblers were Mandarin-speaking mainland Chinese, who constitute more than half of Macau's VIP gamblers. As two Reuters reporters looked on, a middle-aged woman with diamond bracelets staked a single HK$500,000 ($64,440) bet -- and shrugged off the loss.

A supervisor of the VIP floor and several employees said the Chengdu hall - the room that Cheung Chi-tai ran, according to the court testimony -- has been renamed.

Most VIP gambling in Macau is leveraged: gamblers usually bet more than their cash on hand. This is particularly true of mainland Chinese high-rollers who, because of Beijing's strict capital controls, are limited to carrying the equivalent of US$5,000 in renminbi per trip when they leave China. Macau's six publicly listed casino operators lend to only a small minority of their patrons, according to company filings. That is because collection of gambling debt is illegal in China and Macau forbids casinos from writing off their bad or uncollectible debts.

Concerned that junkets with possible links to organized crime could harm their businesses, some U.S. casino executives were reluctant to enter Macau. Harrah's Entertainment Inc , the world's largest casino operator, decided not to bid for a gaming concession there. Michael Chen, Harrah's president for Asia, said in an interview with Reuters last year that the company worried that its regulators around the world would not permit it to run casinos in Macau.
That issue was front and center in the official report released by New Jersey gaming regulators in mid-March regarding MGM Mirage's partnership with Pansy Ho. Regulators cited the junket influence within her father's VIP rooms as a prime concern. "The VIP rooms in (Stanley Ho's) casinos provided organized crime the entry into the Macau gaming market that it had previously lacked," the report said.

When Sands first won a license in Macau in 2002, it was paired with Hong Kong-based casino operator Galaxy Entertainment Group, but the U.S. company ultimately ended the arrangement. William Weidner, the former president of Sands, in a deposition for an unrelated Nevada court case in 2007, cited Galaxy's intent to run the VIP rooms in the traditional Macau style as one of the reasons for the split.

"These guys want to do VIP rooms the way they ... do them in Macau where the ... triad guys run them because they're the only ones that can grant and collect credit in mainland China, and they smuggle the renminbi across the border," he said. "I can't do that business. That's the way they want to do it, so I can't do it."

Sands' major competitor, Wynn Resorts, said the company would decline its Macau gaming concession if it was barred from extending credit and collecting debts directly in an effort to avoid the junket system, according to company filings.

But the U.S. companies realized soon enough that they could not compete with local casinos without junkets.

China's high rollers tend to prefer the personal, informal relationships of the junkets, experts say, and often demand a level of anonymity incompatible with the credit applications required by the casinos.

LOWER PROFILE

While triads remain active in Hong Kong, the gangs have burrowed deeper into mainland China including cities like Chongqing and retain a strong imprint in Macau. The triads are believed to have originated as a rebel grouping in the early Qing Dynasty formed to help overthrow the Manchu regime.

Ko-lin Chin, a professor at Rutgers University and one of the foremost experts on Asian organized crime, disputes the regulator's contention that the triads are less prevalent in Macau. But he said they do keep a lower profile than before internationally owned casinos entered the market and revenues grew from $2.26 billion to $15 billion today.
Even if crime groups are involved in the junket business, he says, with the casinos making so much money, the government reaping huge taxes, and the citizens of Macau enjoying full employment, there is scant political will to remove them.

"No one wants to crash the party," he said. "This is a feel-good story."

(Reporting by Reuters in Macau and Hong Hong and Matt Isaacs in San Francisco and Las Vegas; editing by Lowell Bergman, Jim Impoco and Claudia Parsons)

aurvandil · Mar 30, 2010

This seems to be a huge story. The following are a list of globally renowed newspapers carrying it.

http://www.nytimes.com/reuters/2010/03/29/world/international-uk-casinos-macau-sands.html

http://www.guardian.co.uk/business/feedarticle/9009307

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/29/AR2010032901139.html

aurvandil · Mar 31, 2010

Re: Sands link to Chinese triads

The Casino Regulatory Authority is under Ministry of Home Affairs. The Minister in charge of this is therefore Minister Wong Kan Seng.

The situation is tricky as this report by Reteurs was carried by major newspapers like Guardian, Washington Post and the New York Times. The Neveda Gaming Comission will be obliged to investigate and there is the high chance that they will find that the LV Sands is linked to the triads.

In a related story, MGM which runs the MGM Mirage was found by the New Jersey Casino Control Comission to be linked to organised crime via Pansy Ho, daughter of Stanley Ho. As the Macu operations are so profitable, MGM chose to leave Atlantic City rather than end the relationship with Pansy Ho. The date when this story broke was 18 Mar 2010.

http://www.bloomberg.com/apps/news?pid=20601080&sid=aqZga1sai1Lg

From the Reuters article, it can be seen that is is very difficult to run a casino operation in Macau without involvement with the triads. This is especially the junket business as China has imposed strict controls that prevent Chinese travellers from carrying more than US$5,000. The triads are crtical to provide not only credit but enforcement services. Without the triads assistance in enforcement, the junket operator operating out of China would not be viable due to bad debts.

To be fair to Minister Wong, he has so far taken a very rigourous approach to enforcement of the Casino Control Act. RWS has been operational for a while and no junket license has been issued in spite of intense lobbying by RWS. A recent article by Citibank showed that out of 700 plus tables at RWS, only about 200 plus are operational. This is largely due to the stringent background checks on would be dealers at the casino. Although the Sands is due to soft launch on 27 Apr 2010, a check with the CRA website shows that the casino license has not been issued. If the links to the triads are true, it is therefore entirely possible that license will not be issued pending further investigations.

If the casino license is not issued, then the viability of the Sands IR would be seriously in doubt. The IR needs to generate US$750 mil in the first year to make debt repayments. Casino earnings are expected to about for almost 75%.

Rogue Trader · Mar 31, 2010

Re: Sands link to Chinese triads

No need to go to HK so far. reliable sources say the SEA football bookie syndicate has already leased a VIP suite in MBS for a few million. MHA surely know about this but money talks.

aurvandil · Mar 31, 2010